113: Headline News | Dissecting the TD Bank Scandal & More

welcome to Bare Naked money the podcast where we strip down the complex world of Finance to its Bare Essentials with your hosts Josh shelik and Colin white portfolio managers with Varan Capital Management Inc what's the headline today Colin oh the headline all so you want to talk about TD set aside another $2.6 billion doll us to pay a fine for there any money laundering laps in the states it's interesting to note that you know when you get bad at moneya laundering you don't have one or two people come to you they all come to you so that's the unfortunate position TD I think found themselves and they became the go-to place if you needed to launder money but in related news fees are going up when you say they got bad at money laundering what you actually mean is they're really good at money laundering or or at least their CLI obscurity exactly bad at catching it no and and this is the sand in my shorts because everybody talks about the Canadian Banks and you know your shareholders and all the rest of it but they keep waiting down into the US and you keep having all of these epic headlines come out of there because again they're not the operators they think they are and they take these chances you know TD in in the US is the 10th largest bank you know so they're they got significant size down there but now they have a huge regulatory headwind because The Regulators are you know going to stand in their way about making any more Acquisitions or growing their business down there and they're still not sure what the total fine is going to be like they're still setting aside money hoping they're setting aside enough money for the fine so is that going to mean lower fees for Canadian you know clients of of Canadian banks no they need to take the profitability from up here to pay back all the money they lost down there and that's just not fair I'm sorry I don't you're making some leaps there I'm sorry but call am I am making I am making leaps but I will stand by my leaps you can't tell me that bad operations that cost money does not affect the shareholder and does not affect the client and the offering you can put forward to the client and the required rate of return that you're going to need in order to meet all your targets there's you're right it's not a direct line but the system you squeeze the balloon the other side of the balloon gets bigger yeah one of the things that you mentioned and you and I have been talking about for a while is the Canadian banks have this continued foray into the us and one of the the points that I made on our investment call yesterday was Canadian banks operate in a pretty unique environment and a competitive landscape here in Canada and that there are so few that are so dominant and there are regulatory reasons why that's so and that has helped I think we believe to drive profit margins and what's called return on Equity higher uh for Canadian banks in Canada than really any other banks on the planet so the question is you kind of threw your hat in the ring on what your opinion is but the question is are the Canadian Banks more profitable because they operate in Canada in a unique Market environment or is it because they are such better operators than every other bank on the planet and I think it's well go go go for it your opinion well given the bad news that we keep getting about them shutting stuff down getting fined and all other parts of the world I don't see any evidence that there are Global operators uh on on some new scale I mean the difference in profit margins aren't like a couple percent like it's almost double you know in Canada compared to other parts of the world and you know I think when they sit in the boardroom they all sit on the table say yeah we're awesome operators we can do this anywhere else think this this is a scalable operation and they go to another place and they realize that no that's not true um and and again at the end of the day and I will stand by this it does not improve their ability to serve the Canadian public in the the responsibility they've been given in in the most cost-effective way it it it doesn't serve that purpose you know again maybe not a direct line but I think if you follow the line long enough it is there has to be truth there yeah so probably probably true and I think for the record they are and mostly have been Canadian Banks mostly have been profitable in in foreign jurisdictions um may not maybe not as profitable as they have been in Canada but they have been profitable and and I think you can define success in different ways um and I don't know I don't know if I'm defending the Canadian Banks right now but it sounds keep going I'm enjoying this well I just need I just needed to provide a little bit of balance to your coming through the uh the door uh all a storm count in your chest well okay well but let's step back let's go back to the podcast that we just recorded that everybody should go listen to on dividends you know if as a a shareholder in a Canadian bank and they've made they've been profitable if they cannot redeploy that Capital at the same level of profitability give it back to the shareholders and let them redeploy it somewhere else because right now what they're doing is taking money at a really high profit margin and pissing it up against the wall at a lower profit margin now yes profitable for sure but low don't make that determination for the shareholders give it back to the shareholders and let them decide maybe they want to invest in a US Bank because again fiduciary to the to the shareholders and what's gotten in the way is Corporate compensation I I'll I'll put that out there too because any corporate CEO or any SE Suite person has going to have a mandate for growth and that's how it's going to drive their career and that's what's going to drive their compensation and they're going to sit in the room and convince themselves they're the most amazing operators ever I mean I I probably could write the agenda for the meeting but it's it's not in the best interest of the shareholders in Canada and it's not in the best interest of their clients in Canada yeah I think I think that's fair and I think we do it's hard to say with perfect foresight exactly what they're going to be earning in terms of profitability and whether that's better than their shareholders can get elsewhere so it's not as cut and dry black and white as as you're making it sound but I do think there is probably some uh mixed incentives there for maybe not being optimal for the the shareholder at the end of the day mixed Inc you know water finds every crack like when you pour water on something I that's like greed greed finds every crack greed is greed is very water-like uh so but no it's yeah it's just another Stark reminder and and again part of it is Canadian Banks I'll I'll defend the Canadian banks for a second the Canadian banking system is one of the most stable and the most revered in the world like when the rest of the world is struggling like we don't have bank failures in Canada like they have in the US we do not have you know even during 2008 the Canadian banking system was seen as as something that the rest of the world wish they had all right so yeah I'll stand behind it it's absolutely the Envy of the world in that regard but come on you you can do better you know stop being lazy like just do the right thing you can you can still be big and awesome and and not be so dumb in in some respects yeah bigger picture it's tough to read too much into the the TD results because it is um likely something that's temporary where they've thrown a lot of kitchen sink I I call it dirty laundry into one pile this time around oh listen in my previous life as an accountant I was sitting at the desk when that happened it was like you know the operating results get to a certain point literally they said okay what else do we got and everybody went looking and like as a junior accountant I'm going really this is how it works I was shocked I was appalled I was dismayed but yeah it really is a thing because life is an expectations game and the difference between disappointing your wife a little bit and disappointing your wife a lot it's it's not that material once once once she's disappointed careful listen to this oh absolutely and yes once that disappointed I might as well disappoint her a lot cuz then I I could build back from that and I I could be a hero sometime so it's an expectations game Josh yeah anything else Market related that you're seeing that's catching your interest this week well no I mean you had a good observation there about you know the panic and end of Earth it seems to have been overdone yeah well two weeks ago we thought the world was ending and today I think we're making new highs or close to it with uh with global stocks so it's amazing how Stuff Chang es on a dime and how people can uh investors can Panic pretty quickly and un Panic if that's a word just as quickly un Panic is great oh listen that we had that um revision on the jobs numbers come out that was seems a little bit material it was the jobs numbers are over reported by 919 th000 over was a six-month period or eight month yeah I so I think it was uh it was around 800,000 over the last 12 months is what I but I think whatever the the number is it's it's something that I noted yesterday we've been seeing consistently where jobs in the US have been reported at uh one number and they get revised several weeks later when there is more data to a lower number and that's been consistent for much of the past two years where they've been revised downward so it's one of those things where at first blush things seem okay and then when you get more data um Things Are less okay than people thought so it it also highlights one of the things that we talk about a lot that it's hard to rely on these numbers to make any decisions because for one they're lagging so we're reporting what happened last month or two months ago or whatever and two as we're seeing they're constantly revised so even when they're reported we don't even know what the right number is anymore yeah again anecdotally and I I haven't gone back and I should done the math on this but it seems that it lags when things are on their way way down they tend to be overstated and then get restated down when they're on their way up it seems to go the other way and I think it just comes with the in trying to measure the number of jobs last week oh come on like are you in a plane flying across the country looking down and Counting people walking to work I mean where where is your information coming from that quick I mean you know obviously you're making some assumptions and making some leaps in there uh to come up with number but it does move the market on a daily basis it does move interest rate expectations on a daily basis the re dating of the 8 or 900,000 jobs I don't think I saw a ripple in the market over that no you know so all of those reactions yeah and that's a material you know percentage adjustment I think the average went from 20 some th000 jobs to 170 so I mean it was a a material you know number like percentage wise of the actual members that were reported yeah there wasn't a blip and but going back to what the Federal Reserves are looking at both the US and the Bank of Canada are looking at you know they they probably have you know more information sources than we're looking at uh and may you know let's give them credit for a second trash I'm going to stand up for the US F Reser they might have seen this and and weren't as surprised by this as maybe the rest of the street was or maybe not well let me argue that the rest of the street wasn't that surprised either because the market didn't move at all so if it was truly surprising then the market would have moved a little bit more materially than it did like I said this has been a trend for a couple years now so it might not have been a surprise to investors in aggregate uh that they were revised down yeah no maybe that's true but then again we're just guessing uh so and that's really all we do isn't it Josh educated guessing col educ makes sound so much better that sounds much more expensive yes if you're breaking a sweat trying to figure out what your financial advisor is talking about you're not getting the service you need you probably hate trying to get an answer from them but you also think moving your accounts will be a headache and it might be but working with don't rock thebo wealthplan to buy or sell any Securities or to make any specific Investments any decisions based on information contained in this podcast are the sole responsibility of The Listener we strongly advise Consulting with a professional financial adviser before making any financial decisions listeners should be aware that investing involves risks and that past performances not indicative of future results bare naked money is 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